Facing a $122 million shortfall in a $1.1 billion operating budget, district leaders had already been forced to craft a brutally painful 2012-13 budget that makes ends meet by laying off 1,169 workers, including 821 teachers. But the LAO report suggests as limited as state funding may be for public schools, it still could be more than the state can afford. The LAO said it “can identify no strong rationale for the administration’s assumption that capital gains will grow very rapidly in 2012 and later years.” As a result, the watchdog agency said the Brown administration’s revenue forecast for this fiscal year and 2012-13 appeared $6.5 billion on the high side.

What this likely means is that even if voters pass temporary tax hikes in November that the governor says will be the salvation of public schools, the budget crisis will remain intractable in many districts – until the state economy rebounds in a big way.

Against this backdrop, San Diego Unified trustee Scott Barnett says it is time for district leaders to consider insolvency, which would lead to a state takeover of the district and the forced ouster of Superintendent Bill Kowba and the school board.

“I’m not sure we can be run any worse than what we’re facing, given the massive layoffs and the implications for our kids. And if you go that route ... six people lose jobs versus 1,200,” Barnett said in a Thursday interview.

Of course, there is a third option. Most observers think the bulk of the layoffs could be avoided If the San Diego Education Association agreed to delay phased-in 7.2 percent pay hikes negotiated for 2012-13; agreed to a week of furloughs; and accepted a temporary suspension of contract provisions that provide automatic annual pay raises to some workers based on seniority and graduate studies.

But this is a nonstarter with the teachers union, whose leader actually was quoted this week in San Diego CityBeat as saying, “We don’t know whether the district has a budgetary problem.”

The union chief, Bill Freeman, bases this on the fact that past warnings of impending K-12 calamity by the governor, the Legislature and the San Diego school board have proved exaggerated. But a key reason those warnings weren’t followed through on was the political power of teachers unions here and statewide, which demanded and got phony budgets that disguised big deficits.

We implore Freeman and the SDEA to stop saying past phony budgets are evidence we need to have another phony budget or that the current budget crisis isn’t real. Unless all stakeholders cooperate constructively, a catastrophe looms in San Diego Unified – whether it’s vast layoffs or a state takeover that could end local control of schools for a decade or more.